As the end of summer approaches, we are delighted to bring to you the first edition of our A&M Tax & Customs Newsletter, packed with key insights and analysis of the tax & customs regulatory updates released in the past three months in the Gulf region.
UNITED ARAB EMIRATES
DIRECT TAX UPDATES
Corporate tax guide for investment funds and managers
The FTA published the UAE Corporate Tax ("CT") Guide for Investment Funds and Investment Managers (the "Guide") providing further information around:
- Conditions for a Qualifying Investment Fund ("QIF") to be exempt from CT;Conditions for a Real Estate Investment Trust ("REIT") to be exempt from CT;
- Tax implications for an investor investing in a QIF;
- Conditions for a foreign person to benefit from the Investment Manager Permanent Establishment ("PE") exemption; and
- Relevant CT compliance requirements for the above.
The guide also provided Transfer Pricing ("TP") requirements for investment managers.
For further information on this update, please click here.
For further support, please contact our experts to help you in your CT and TP compliance journey.
Corporate Tax Public Clarification
The FTA published a CT public clarification on the first Tax Period of a juridical person (Public Clarification). This provides further information around the first Tax Period for:
- A juridical person that is a Taxable Person and is subject to the UAE Commercial Companies Law;
- A Non-Resident Person who is a juridical person who has a Permanent Establishment ("PE") in the UAE;
- A Resident Person that is incorporated or otherwise established or recognized under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the UAE; and
- Timeline for Tax Deregistration in case of the cessation of Business or Business Activities before or during the first Tax Period.
For further information on this update, please click here.
Corporate Tax Guide on Determining Taxable Income
The FTA published a CT guide on determining taxable income for taxable persons, providing further information around:
- Deductible and non-deductible expenditures.
- Interest expenditures.
- Tax loss relief.
- Transfer of tax loss and limitation on tax loss carried forward.
- Cash basis of accounting.
- Unrealized gains and losses, exempt income.
- Foreign permanent establishment.
- Non-resident person conducting business in the UAE.
For further information on this update, please click here.
Corporate Tax Basic Information Business Bulletin - Natural Person
The FTA published a basic tax information bulletin about CT for natural persons, providing further information around:
- When are natural persons subject to UAE CT.
- The income of natural persons that are subject to CT.
- The CT rate for natural persons.
- The CT Period for natural persons.
- Timeline for natural person CT registration.
The bulletin also provides information on what would happen when a natural person already registered for CT has a turnover from business or business activity below AED 1 million in a subsequent Gregorian calendar year. Also, it provides information on when a natural person should deregister for CT purposes. Moreover, it provides information on audited financial statements and what about the timelines to file a tax return.
For further information on this update, please click here.
Corporate Tax Basic Information Business Bulletin - Free Zone Persons
The FTA published a basic tax information bulletin about CT for free zone persons, providing further information around:
- Conditions for a Free Zone Person to be a Qualifying Free Zone Person.
- Consequence if a Qualifying Free Zone Person fails to meet any of the conditions to be a Qualifying Free Zone Person.
- Qualifying Income which can benefit from 0% CT rate.
- Qualifying and Excluded activities.
The bulletin also provides information on the compliance requirements for a free zone person under the CT law, this includes the timeline for tax registration, the requirement for having audited financial statements, maintaining records and timeline for tax returns and tax payment.
For further information on this update, please click here.
The UAE and Kuwait Tax Treaty was approved
On 8 July 2024, the Council of Ministers of Kuwait issued Decree-Law No. 07 of 2024 approving the Kuwait - United Arab Emirates Income and Capital Tax Treaty of 2024. The treaty is available in Arabic language.
Some of the treaty provisions would include the taxation of business profits, dividends, interest, royalties, capital gains, and income from employment, pensions and government service.
For further information, please contact your usual A&M tax contact person.
INDIRECT TAX UPDATES – Value Added Tax (VAT), Customs & Excise Tax
Public Clarification on Manpower vs Visa Facilitation services
The Federal Tax Authority (FTA) released a VAT clarification (VATP038) over the difference between manpower and visa facilitation services, and more importantly, how to determine the value of these supplies for VAT purposes.
The clarification outlines various scenarios and qualifying conditions for visa facilitation services if all of the below are met:
- Contractual Employer and the Customer must be part of the same corporate group but not the same tax group;
- The facilitator's business activities do not include manpower supplies;
- The facilitator is not responsible for any employee related obligations;
- The employees sponsored are to work exclusively under the supervision and control of the customer.
In such scenarios, VAT is only due on the administrative fees associated with visa sharing or "employer of record" type arrangements. However, where the conditions aren't met or whereby omission it suggests that the services fall under the ambit of manpower services by virtue of not meeting the conditions, VAT is due on the full value i.e. on the entire salary benefits and other charges e.g. facilitation charges (irrespective of who pays the salary to the worker).
The easement is quite restrictive, so we suspect many situations will not qualify. Therefore, we recommend reviewing all the intercompany staff arrangements (particularly where they are between entities that are not VAT grouped) to ensure compliance and avoiding any ambiguity and disputes with the FTA during the audit.
For further information on this update, please click here. Should you need any further support, please contact our experts to help you navigate around this technical insight.
Dubai Customs Voluntary Disclosures system
To promote transparency and encourage compliance, Dubai Customs Authority introduced a Voluntary Disclosure System for businesses registered with Dubai Customs (Customs Policy No. (58/2024)). This system enables the registered businesses to rectify customs errors and violations on a Suo-moto basis, thereby potentially benefiting from full or partial penalty waivers.
For further information on this update, please click here.
Excise tax refund for non-registered businesses
The Federal Tax Authority in the UAE released new comprehensive user manuals detailing the procedure for non-Excise registered businesses to claim a refund of Excise tax incurred on goods which are directly or indirectly exported outside the UAE. This aligns with recent amendments to the executive regulations of the Excise Tax Law that permit such refunds.
For further information on the steps and procedures, please click here.
As the process can be elaborate and require careful review of the documents involved, we recommend allocating sufficient time and resources for accurate submission and potential interactions with the FTA during the verification process.
If you would like to discuss this or any other Excise tax matters, please reach out to our experts.
TRANSFER PRICING UPDATES
Public clarification regarding the definition of Related Parties for Government Entities
The FTA released a public clarification regarding the definition of Related Parties for Government Entities explaining the definition along with its application to structures where common ownership and/or control is held by the UAE Federal Government or a Local Government (i.e. Emirate-level government). The clarification further specifies that common ownership and/or control by a Federal or Local Government, on its own, does not establish a basis to be considered Related Parties under the CT Law.
Prior to this clarification, there was a concern that all transactions between entities in different groups under common Federal/Local Government ownership and/or control might be considered Related Parties, necessitating their reporting in the Disclosure Form (the format of which is yet to be disclosed) and documentation within the Local File.
For further information on this update, please click here.
Introduction of APA program in UAE
In light of the recently released UAE TP guidelines, the FTA has released Decision No. 4 of 2024 (Effective from 1 July 2024), which states that taxpayers in the UAE will be able to enter into APAs for related party transactions or arrangements. More details related to the APA program will be released in due course.
KINGDOM OF SAUDI ARABIA
Guidelines for selecting taxpayers for wave 11 for implementing the integration phase of E-invoicing
The Zakat, Tax and Customs Authority (ZATCA) released guidance around the selection and qualifying criteria for the targeted taxpayers in the eleventh wave for implementing the "Integration Phase " of E-invoicing. It further clarified that the eleventh wave included all taxpayers whose revenues subject to VAT exceeded (15 million Saudi Riyals) during 2022 or 2023.
Selected taxpayers meeting the qualifying criteria are required to integrate their E-invoicing solutions with the FATOORA platform with effect from 1 November 2024.
For further information on this update, please click here.
ZATCA invites taxpayers to benefit from the "Cancellation of Fines and Exemption of Financial Penalties Initiative"
The ZATCA reminded and urged all taxpayers to take advantage of the "Cancellation of Fines and Exemption of Financial Penalties Initiative" ("Initiative") which was extended up to 31 December 2024.
The Initiative covers fines for late registration, late payment, late filing of returns, fines in all tax laws, and fines to correct VAT returns, including fines for violations of VAT field control related to applying the e-invoicing regulations and other VAT general regulations. The Initiative excludes penalties related to tax evasion violations and fines paid before the Initiative's effective date.
For further information on this update, please click here.
To access the Initiative's simplified guide, please click here.
ZATCA's proposal to overhaul VAT law and regulations
ZATCA are planning some extensive redrafting of the VAT law and have issued drafts of revised text for discussion. These can be found here.
These changes are not all entirely 'clarificatory' and it is recommended that taxpayers read the changes to review any business impacts. Businesses may also consider responding to the consultation as it is most welcome and forward thinking of ZATCA to publish these changes in advance. We are available as always to discuss these important updates.
TRANSFER PRICING UPDATES
Updated KSA Transfer Pricing Guidelines
The KSA Transfer Pricing (TP) Guidelines were updated in June 2024. One of the main updates includes the applicability of the TP rules on Zakat payers that have aggregated related party transactions of SAR 100 million. Zakat payers meeting this threshold will be required to comply with the following:
Design / implement transfer pricing policies for the intra-group transactions in line with the requirements of the KSA TP guidelines.
- Design / implement transfer pricing policies for the intra-group transactions in line with the requirements of the KSA TP guidelines.
- Prepare disclosure forms / TP affidavit to be submitted with the tax return.
- Prepare a local file and master file.
- Prepare the CbCR if the required thresholds are met.
Other key updates include the formal introduction of an Advanced Pricing Agreement (APA) program in KSA. Taxpayers can enter into unilateral APAs for related party transactions that carry a value of SAR 100 million. The APA will be applicable for 3 years and is subject to renewal. The guidelines discuss in detail the procedure required to be followed to apply for the APA.
BAHRAIN
Introduction of a Domestic Minimum Top-up Tax ("DMTT") for multinational enterprises ("MNEs")
On the 1st of September 2024, the Kingdom of Bahrain announced the introduction of a DMTT of 15% applicable to large MNEs with headquarters or operations within Bahrain with consolidated revenues exceeding EUR 750 million (for at least two of the four immediately preceding fiscal years). This release is a further demonstration of global alignment and commitment to the OECD's inclusive framework to introduce a global minimum tax ("GMT") of 15% on large internationally operating groups. The Law will come into effect from the 1st of January 2025. The introduction of the DMTT prior to the release of a more traditional corporate income tax regime raises the question of whether Bahrain will introduce such a regime for corporations not targeted by the DMTT rules.
The MNE's that currently operate within Bahrain should BE AWARE of these rules with many already assessing the Effective Tax Rate ("ETR") impact the rules could bring TO all their jurisdictions of operation. The role of finance and tax teams within MNE's impacted by the GMT rules introduced around the world could be subject to significant change by virtue of the introduction of new compliance and filing requirements.
As such, it's important to obtain professional advice in navigating through these changes and ensuring adherence to the rules. Please reach out to a member of the A&M Tax Team if you have any questions or would like to discuss how this could impact you.
OMAN
Introducing personal income tax
Oman recently took steps towards the introduction of personal income tax. Whilst the details have not been shared with regards to scope and rates etc., it is likely to have implications for Oman economy, as well as other countries in the GCC region. We recently shared our views on this in Arabian Gulf Business Insight ; The National and Al Qabas.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.